Banking Crises and Reversals in Financial Reforms

A number of countries have gone through banking crises since the early 1970s. This work links those episodes with the patterns of various financial reforms within those countries. As banking crises in a domestic economy are endogenous, exposures to banking crises in the rest of the world through the trade channel help identify the domestic banking crises. Both 2SLS and GMM estimations are used. The results demonstrate that systemic banking crises reverse financial reforms with varying lags, while non-systemic crises exert a weaker influence on financial reforms. The core methodological contribution of this work is an empirical identification strategy for occurrences of banking crises.